Hollysys Automation Technologies (HOLI, Financial) has been making waves in the stock market with a daily gain of 5.92% and a 3-month gain of 26.35%. However, with an Earnings Per Share (EPS) (EPS) of 1.73, the question arises: is the stock modestly overvalued? This article aims to provide a comprehensive analysis of Hollysys Automation Technologies (HOLI)'s valuation, encouraging readers to delve into the details of the company's financial performance.
Company Introduction
Hollysys Automation Technologies Ltd is a China-based company that provides automation and control technologies and products. The company operates through three segments. Its Industrial Automation (IA) segment supplies solutions including third-party hardware-centric products, proprietary software products, and others. The Rail segment supplies train control center and automation train protection to the rail and subway industries. The Mechanical and Electrical (M&E) segment consists of its two Southeast Asia-based subsidiaries that provide mechanical and electrical solutions. Hollysys Automation Technologies generates most of its sales from the Chinese domestic market.
With a current stock price of $21.82 per share and a market cap of $1.40 billion, it's essential to compare this with the GF Value of $19.27, an estimation of fair value. This comparison paves the way for a deeper exploration of the company's value, integrating financial assessment with essential company details.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our proprietary method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
According to the GF Value, Hollysys Automation Technologies (HOLI, Financial) appears to be modestly overvalued. This valuation suggests that the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Hollysys Automation Technologies has a cash-to-debt ratio of 18.43, which ranks better than 80.27% of 2854 companies in the Industrial Products industry. GuruFocus ranks Hollysys Automation Technologies's financial strength as 9 out of 10, indicating a strong balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Hollysys Automation Technologies has been profitable for 10 years over the past 10 years. Its operating margin of 11.97% is better than 73.51% of 2899 companies in the Industrial Products industry. GuruFocus ranks Hollysys Automation Technologies's profitability as strong.
Growth is an essential factor in the valuation of a company. Hollysys Automation Technologies's 3-year average annual revenue growth is 14.7%, which ranks better than 71.36% of 2734 companies in the Industrial Products industry. However, the 3-year average EBITDA growth rate is 5.8%, which ranks worse than 57.44% of 2425 companies in the Industrial Products industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). For the past 12 months, Hollysys Automation Technologies's ROIC is 11.04, and its WACC is 6.95.
Conclusion
In summary, the stock of Hollysys Automation Technologies (HOLI, Financial) gives every indication of being modestly overvalued. The company's financial condition is strong, and its profitability is strong. However, its growth ranks worse than 57.44% of 2425 companies in the Industrial Products industry. For more details about Hollysys Automation Technologies stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
